Cliff Deal Hinges on Senators

White House Meeting Ends With Expressions of Cautious Optimism From Both Sides on Negotiations

By

Janet Hook and

Carol E. Lee

Updated Dec. 28, 2012 7:52 p.m. ET

WASHINGTON—The job of averting year-end tax increases and spending cuts landed squarely on the Senate, whose leaders said Friday they would launch a last-ditch weekend effort to avert the so-called fiscal cliff.

President Barack Obama met with all four congressional leaders in an hourlong meeting in the Oval Office to review an increasingly narrow range of options.

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President Obama said Friday that he is 'modestly optimistic' on a deal.
Getty Images

He later said he was "modestly optimistic" a deal could be reached, echoing comments from the top Democrat and Republican in the Senate.

"We had a good meeting down at the White House and we are engaged in discussions…in the hopes that we can come forward as early as Sunday" with a plan, said Senate Minority Leader Mitch McConnell (R., Ky.). "We'll be working hard to try to see if we can get there in the next 24 hours," he said, adding he was "hopeful and optimistic."

Senate Majority Leader Harry Reid (D., Nev.) agreed the meeting was "constructive." In a warning that seemed aimed at lawmakers in both parties, he said, "whatever we come up with is going to be imperfect."

Mr. Obama said Messrs. McConnell and Reid have the weekend to reach and pass a deal.

In a move meant to pressure Republicans, Mr. Obama asked Mr. Reid and House Speaker John Boehner (R., Ohio) to bring up a bill to extend income-tax rates for income under $250,000 and unemployment-insurance benefits if Senate leaders can't reach an agreement. "The hour for immediate action is here, it is now," he said.

The two Senate leaders now have to concoct a deal that has eluded Washington since the election, and it remained unclear how the two sides could bridge their remaining differences, in particular over the threshold at which higher tax rates would kick in. Mr. Obama left open the possibility at the White House meeting of going higher than $250,000, a senior administration official said.

It remains uncertain whether a bipartisan agreement can be reached. If there is a Reid-McConnell deal, officials said, it would probably include these elements: an extension of current income-tax rates for most Americans; a measure to block a scheduled expansion of the alternative minimum tax; an extension of unemployment benefits and possibly a measure to prevent a scheduled cut in Medicare payments to doctors.

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U.S. Senate Minority Leader Mitch McConnell (R.,Ky.) speaks to reporters at the U.S. Capitol in Washington on Friday.
Reuters

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John Boehner, the speaker of the House of Representatives, arrives at the West Wing of the White House on Friday for "fiscal cliff" talks.
Agence France-Presse/Getty Images

A wide range of other issues are on the table that could serve as sweeteners or stumbling blocks, potentially including elements of a stalled farm bill. Mr. Obama wants to include an extension of the U.S.'s borrowing limit, which will be breached in the spring, but that is unlikely, officials said.

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The president also wanted to postpone the $110 billion in spending cuts due to take effect Jan. 2. Mr. Boehner said he wouldn't agree unless other programs were cut to compensate. A GOP aide said it was "clear" the spending cuts wouldn't be addressed this round.

Likely to be included is a measure blocking a Jan. 1 increase in the estate tax, an issue that divides Democrats and is make-or-break for senators of both parties. "I'm totally dead set on keeping the rates right where they are," said Sen. Jon Kyl (R., Ariz.), guessing that 60 senators shared his position.

How the House will respond to any Senate deal is a crucial unanswered question. According to a spokesman, Mr. Boehner told the president the House would consider whatever bill passes the Senate, either accepting or amending it.

Before Friday's meeting at the White House, which was also attended by Vice President Joe Biden and Treasury Secretary Timothy Geithner, many on Capitol Hill had begun to predict no deal would be reached, a mood reflected in stock trading Friday. The Dow Jones Industrial Average fell 158.20 points, or 1.2%, to 12938.11, its fifth straight decline on fears Washington couldn't come to agreement.

Senate Republicans have indicated they could accept some kind of compromise that would raise the threshold for income tax increases to $400,000—the level Mr. Obama had agreed to as part of broader budget talks with Mr. Boehner that broke down last week.

A senior administration official said Mr. Obama didn't rule out the possibility for moving up to that higher threshold.

The difference between the two tax thresholds is more important politically than as budget policy.

Raising tax rates on income above $250,000 would bring in roughly $950 billion over 10 years, according to White House estimates.

Official budget watchers haven't crunched the numbers for a higher threshold, but various estimates suggest one of $500,000 would bring in around $740 billion over 10 years. That $210-billion difference represents 0.5% of the $39.77 trillion the White House estimates will be collected in taxes over the next 10 years.

As anxiety washed over Capitol Hill, Senate Finance Committee Chairman Max Baucus (D., Mont.) took to the Senate floor Friday afternoon to mourn the fact that Congress has found it so hard to bridge differences over tax and spending.

"It is only because of stubbornness and stagnation on both sides of the aisle that we find ourselves facing this great challenge at the 11th hour," said Mr. Baucus.

Mr. Obama said he hoped the deal, however small, would lay the groundwork for efforts next year to reduce the deficit, but didn't say how that would be done.

He warned that the public's confidence in the U.S. political system was at stake. "The American people are not going to have any patience for a politically self-inflicted wound to our economy," he said.

Although the president convened Friday's meeting, it is clear the ability to break the impasse now rests in the hands of two Senate leaders—known for their tactical prowess—who have been exchanging bitter partisan barbs for weeks.

The optimism expressed by Mr. McConnell Friday was noteworthy because until a day earlier he had been on the sidelines of negotiations.

Many viewed him as a potentially pivotal figure if he became engaged in the final construction of a possible deal.

Republicans are growing increasingly concerned about being blamed if the country topples over the cliff, and a GOP lawmaker suggested Friday they wouldn't stand in the way if a deal can be reached.

Sen. Pat Toomey (R., Pa.), a conservative, speaking in a radio interview earlier Friday, said the Senate could take up a House-passed bill, amend it to extend tax rates for all but the top earners and then pass it with just 51 votes—"at which point I think it's very likely frankly that the House would take it up and pass it."

Sen. Bob Corker (R., Tenn.) said senators huddling Friday morning were talking about how they could move a deal through Congress, not about potentially holding it up.

"There's actually been no discussions today about blocking things on the Senate floor," he said.

The House is scheduled to reconvene Sunday night and House Republicans are scheduled to hold a closed-door party meeting Monday morning, presumably to review whatever deal might emerge from the upper chamber.

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